Porter argues that if a firm is to attain competitive advantage; it must choose between the types of competitive advantage it seeks, discuss using an industrial example?
An industry can be defined as a group of companies offering products that are closely substituting for each other in order to satisfy customers. Competitive advantage can be defined as when a firm sustains profit which exceeds the company’s average; it automatically possesses competitive advantage over rivals. The business strategy for most companies is to achieve a sustainable competitive advantage. This essay aims to discuss why firms must choose between types of competitive advantages using an industrial example.
Michael Porter indentified that there are 2 basic types of competitive advantage, cost advantage and differentiation advantage. A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower price (Cost Advantage) or deliver benefits that exceed those of the competitors (Differentiation). Thus, the firm creates superior value and products for customers whilst it gains superior profit for the company. A resource based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that results in creating superior value thus the firm must have resources and capabilities that are superior to those of the competitors. Resources are the firm specific assets used for creating either a cost advantage or differentiation advantage, examples of resources are brand equity, reputation, installed customer base. While, capabilities refer to the firm’s ability of utilizing its resources, an example is the ability to bring out a product or market before competitors. Thus, the resources and capabilities together result in distinctive competencies which allow innovation, efficiency, creativity, quality and customer responsiveness which can be leveraged to create cost advantage or differentiation....
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